Wednesday, December 31, 2014

Each year I provide Smashwords authors and publishers a review of our progress in the year as well as hints of our plans for the coming year. So here goes.

2014 marked another exciting year for Smashwords as we create new ebook distribution tools and capabilities that give our authors and publishers a competitive advantage in the marketplace.

If you’re new to Smashwords, a brief introduction to Smashwords is in order.

I founded Smashwords in 2008 to empower writers to become professional self-publishers. I wanted to transfer the power of publishing from publishers to authors. Back in 2008, large publishers controlled the printing press, the knowledge of professional publishing, and the all-important access to retail distribution. Publishers had the power to determine your fate as an author. No more. I wanted to make authors the captains of their own destiny.

Over the last six going on seven years, Smashwords introduced our free ebook printing press, Meatgrinder, which made it possible for any writer anywhere to publish an ebook in minutes; we opened distribution for the first time to major retailers and library partners that were previously inaccessible to self-published authors; we developed sophisticated yet easy-to-use publishing tools that help writers and small indie presses publish with pride and professionalism; we worked to actively educate our authors and publishers how to leverage best practices to publish with greater success; and we’ve been fierce (but friendly!) advocates for the rights and long term interests of the indie author community.

We exist to serve our authors and publishers, and we serve you by developing tools and relationships that help you publish faster, smarter and more effectively. Our time-saving tools help you spend more time writing and producing and less time managing multiple upload platforms.

In the years since we launched, Smashwords has grown to become the world’s largest distributor of self-published books. To the extent we’ve been successful is entirely thanks to the continued support of the authors, publishers and retailers we serve. You’re running a business, and we realize you work with Smashwords by choice, not by necessity. Through continuous improvement of everything we do, we will always work to earn and deserve your continued business, trust and partnership.

So let’s take a look at our progress for the year.

Among our service milestones for the year:

New distribution channels - We added new distribution partners including OverDrive, the world’s largest ebook supplier serving over 20,000 public libraries, and Txtr, a European retailer. New partners Oyster and Scribd were brought fully online.

Faster distributions - Working in close partnership with all our
retail partners, Smashwords dramatically increased the speed and
reliability of our distribution systems in 2014. We’re now shipping
multiple times daily to most of our retailers, and near-real time to
iBooks, where, for example, and it’s not uncommon for authors to upload a
book to Smashwords and see it appear at iBooks the same day. Faster
distributions of new titles and metadata updates give our authors more
control over their publishing.

Added EPUB 3 support - Smashwords now accepts EPUB3 files as part of our Smashwords Direct feature. EPUB3 gives authors and publishers greater language support and text layout options, including right to left reading and vertical reading.

We helped more authors realize their full potential - Smashwords
authors bring us their talent, and we give them tools to help realize
the full potential of their talent. Multiple Smashwords authors hit
retailer bestseller lists in 2015 as well as national lists such as New
York Times and USA Today, aided in part by the power of Smashwords
preorders to iBooks, Barnes & Noble and Kobo, and also supported by
enhanced metadata tools such as Smashwords Series Manager which improves series discoverability at retailers.

Diversification pays off - Our broad distribution network helped authors and publishers diversify their exposure to an industry-wide slowdown in ebook retailing. Strong merchandising support for Smashwords authors by our wonderful colleagues at iBooks combined with sales growth from new distribution partners FlipKart, OverDrive; Oyster and Scribd helped many Smashwords authors and publishers have a great year.

Diversification pays off again - Authors who fully distributed their titles with Smashwords were partially insulated from the dramatic sales drops many Amazon authors reported following the introduction of Kindle Unlimited. If you know indie authors who only upload to Amazon, invite them to diversify their distribution with Smashwords.

Among our business milestones for the year:

Title growth - The Smashwords catalog grew to 336,400 titles, up 60,300 titles or 22% during the year from 276,100 at the end of 2013.

Author growth - Smashwords now serves over 100,000 indie authors and small independent presses around the globe.

Profitability - For the fourth year in a row, Smashwords maintained profitability. Profitability is important to our authors and publishers because it allows us to reinvest in the development of new tools and capabilities to serve our authors and publishers. We continue to achieve this profitability by aligning our interests 100% with the interests of our authors, publishers, retailers and readers. Unlike many competing self-publishing services organizations, we don’t employ sales people and we don’t sell services or publishing packages. We only make money if we help our authors and publishers sell books.

26 team members to serve you - We end the year with a team of 26 full-time professionals, up from 23 in 2013, 19 in 2012, 13 in 2011 and 3 in 2010. This year we made significant investments in technology, distribution systems and finance.

ALLi Award - The Alliance of Independent Authors (ALLi) named Smashwords its service provider of the year, in recognition for the depth and breadth of our distribution capabilities, our advocacy for authors and our relentless commitment to continuous service improvement to empower the success of indie authors worldwide.

INC 500 - INC Magazine named Smashwords to its INC 500 list of America’s fastest growing private companies. They named Smashwords the #1 fastest-growing media company. Full credit for this accomplishment goes to Smashwords authors and publishers!

Bowker survey - Bowker, in their annual survey of self-publishing services, named Smashwords the #1 producer of ebooks in the U.S. View the report here (opens a PDF)

Forbes America's Most Promising Companies - Forbes Magazine, for the second year running, named Smashwords to its list of America’s Top 100 Most Promising Companies.

Despite our accomplishments in 2014, we’re not finished pushing the envelope. We still feel like we've only scratched the surface of what's possible. Our roadmap for 2015 and beyond is exciting.

Here are some hints to our direction. In 2015, our authors and publishers can expect to see continuous improvements across every part of our business, including:

New distribution and merchandising tools that make your books more discoverable and desirable by readers

New price management tools that give our authors and publishers more granular control over pricing in multiple currencies and territories

New retailer additions to the Smashwords distribution network serving retailers and libraries

Improved, more intuitive sales reporting

An upgraded Meatgrinder to improve the ease and capabilities of our flagship ebook conversion tool

Improved search for the Smashwords retail store

... and some fun surprises that will set the stage for even greater things to come.

On behalf of the entire team at Smashwords I want to thank you for your continued trust, partnership and inspiration. We’re looking forward to serving you in 2015!

Welcome to my annual publishing industry predictions for the year ahead. This year I share 12 predictions.

Before I speculate about what 2015 holds for authors and publishers, let’s reflect for a moment about how self publishing has transformed the book publishing landscape.

Thanks to ebook self publishing, every writer in the world has
democratized access to the tools and knowledge of professional
publishing. It's now possible for writers to make their books instantly
accessible, discoverable and affordable to billions of readers around
the world.

Most exciting of all, we're still in the early days of the ebook self publishing revolution. I'm confident that decades from now, ebook self publishing will be viewed by historians as no less transformative than the advent of the Gutenberg printing press.

Despite the incredible opportunities available to every indie author, clouds loom on the horizon. Recent years of exponential ebook growth have given way to a new normal of slower growth, greater competition and disruptive business models and power struggles. These factors create new threats and opportunities for publishing industry participants.

This is why annual predictions are so useful. To the extent any of us can predict the future (an exercise fraught with folly I might add!), predictions help stir the imagination, spark constructive debate and assist with strategic planning.

So without further delay, I present to you my predictions for 2015. Enjoy!

Mark Coker’s Publishing Predictions for 2015

1. More authors will aspire to publish indie – In 2008 when I founded Smashwords, nearly all writers aspired to traditionally publish. Self-publishing was viewed as the option of last resort – the option for failed writers. Today the former stigma of self publishing is evaporating. Indie authorship has become a global cultural movement, as I described when I published the Indie Author Manifesto earlier this year. The indie author movement will grow stronger in 2015. Traditionally published authors will continue to transition to indie, led by midlist authors. We’ll also see more hybrid authors reorient their publishing strategy back in the direction of indieville.

2. Indie authors will capture more ebook market share – The
percentage of reader dollars going to indie ebooks will increase. The growth will be fueled by a continued increase in the number of indie-published
ebooks, and by more indie authors adopting best practices to publish
with greater pride and professionalism. In March I shared some of my
longer term market share projections here and here.

3. Screen reading will increase, but at a slower rate – For readers of English language books, the early adopters of ebooks have adopted. I think reading will continue to transition from print to digital, yet the rate of growth will slow. One bright spot will be the continued growth in screen reading in developing countries aided by the ubiquity of smart phones.

4. 2015 will be slow growth for most authors, indie and traditional alike – I blogged about this topic last month in my post titled, Ebook Publishing Gets More Difficult From Here. While some indies had a fabulous year in 2014 (look no further than the Smashwords bestseller list published in Publishers Weekly each month), most authors experienced a slower growth year - especially when compared against the go-go days of exponential growth from 2008 to 2012. The causes for this slow down include a new equilibrium between print and ebook formats; immortal ebooks published by publishers and indie authors alike that will never go out of print; the continued growth of self-published titles; and myriad low-cost and free non-book alternatives competing for slices of consumers’ time such as social media, Internet video and games.

5. Indie authors face increased competition from traditional publishers – For the first years of the ebook revolution, large publishers all but ceded the $4.99 and lower ebook market to indie authors. Publishers tried to maintain higher prices, and indies – empowered with the ability to earn royalty rates of 60-80% list price - offered budget-conscious consumers high-quality books at low prices. The low prices, including the ultralow prices of FREE and .99, made it easier for readers to take a chance on unknown writers.

In the last year, large publishers, borrowing a page from the indie author playbook, have stepped up their price-cutting in the form of temporary promotions on titles from big-name authors. In 2015 we’ll see the temporary promotions from large publishers that were so common in 2014 give way to permanent lower prices on backlist titles from big names, and faster, more aggressive discounting on recently released titles.

This means indies will face increased competition in the sub $5.00 price points. In the past, you could identify indie titles on the bestseller lists by price alone. This is no longer the case. Large publishers will also make greater use of ultra-low prices.

6. Large publishers step up usage of FREE – Inspired by the success of indie series writers who’ve had enormous success pricing series starters at permafree, large publishers will start making increased use of this unconventional price point. Although few large publishers have made use of free as a promotional tool to date, this will begin to change in 2015. As retailers such as iBooks run more "First in a Series Free" promotions which heretofore have been dominated by indie authors, publishers will feel the pressure to jump in. As I write these predictions, iBooks is running a major multi-genre First in a Series Free promotion with nearly all the titles supplied by indie authors. Fifty nine Smashwords titles are featured!

7. FREE will lose more mojo – Since 2008 I’ve encouraged authors to utilize free as a price point to turbocharge downloads, build readership and reader trust, and drive readers to priced titles. Authors who followed this advice early on reaped the most benefit. However, free is losing some of its gusto as the market becomes flooded with free ebooks. At Smashwords, nearly 50,000 titles are priced at free.

In our 2014 Smashwords survey we found that free books at iBooks were downloaded with 39 times more frequency than books at a price, down from a multiplier of 91 in the prior 2013 survey. In 2015 I predict the multiplier will drop further. Despite the anticipated drop in effectiveness, free remains one of the most powerful merchandising tools for indie authors, especially when applied to series starters. This also means that authors who utilize free today will get much more mileage from it than authors who use it a year from now (hint: If you’re using free, make sure your free titles are upgraded with enhanced backmatter so they direct readers to your priced titles. See my blog post and video on this subject). If you haven’t experimented with free yet, now is the time.

8. Many indies will quit in 2015 – Authorship is tough work. Discouraged by weak or slumping sales, many indie authors in 2015 will either give up on publishing or will decrease their production rates. With the rapid rise of anything – whether we’re talking tulips, dot com stocks or real estate – bubbles form when the market becomes too frothy, too optimistic, too euphoric, and too crowded. All markets are cyclical, so this boom-to-bust pattern, while painful for many, is healthy for the long term, especially for authors who stick it out.

Indie authors will be forced to take honest stock of their dreams, motivations and commitment. What drives you? Is it the joy of writing, or the necessity of putting food on the table, or both? Either reason is respectable, but if your family’s next meal is entirely dependent upon your book sales, you’re under extra pressure.

9. Time management will separate winners from losers – Raise your hand if you have too many hours in the day. I’d hazard to speculate that each and every one of us fails on time management to some degree each day. We only have so many minutes in a day, and only so many heartbeats in a lifetime. Are you optimizing your author time so you’re spending more time writing and less time on the nonessentials?

For example, if it takes you multiple hours to format your ebook, why not hire a low cost formatter for $40 or less? I’ll give you another example, and this one’s entirely self-serving but will resonate with many Smashwords authors - using a distributor. Smashwords is a distributor. Our job is to help you quickly deliver your book to multiple retailers, and then help you manage and control it with minimal effort. When an author works with Smashwords, in exchange for a small commission we earn on every sale, the author gains the time-saving benefits of a single upload, centralized metadata management, and consolidated sales reporting and tax reporting. I think this is why the vast majority of Smashwords authors choose to fully distribute with Smashwords rather than uploading direct to retailers. The time-saving advantages of managing your publishing with a distributor become even more pronounced once you’re managing multiple titles. No author’s career will fail because they gave 10% list to a distributor, but many authors will fail because they’re not focusing enough time on writing.

Another example. Many authors spend too much time on marketing and social media when they should be spending more time writing. Your best marketing is a book that sparks enthusiastic word of mouth, so focus on the book. If you enjoy social media, that's great, but try to make it your end-of-day brain break after you've completed your daily writing quota.

10. Amazon Will Use Kindle Unlimited to Pay Authors Less – Whether you love it or hate it, KU is already a massive disruptor in the world of ebook publishing. Many writers are claiming it caused their sales to plummet, while others say it has helped them reach new readers. You can check out my prior analysis of KU here and here, or check out David Streitfeld's recent story on KU in the New York Times.

KU will have broader impact in 2015. Unlike its ebook subscription competitors Oyster and Scribd which allow authors and publishers to set prices and receive retailer-level margins on qualifying reads (Smashwords authors earn 60% of their book’s list price), KU pays from a shared pool. Author/publisher compensation is based on a book’s prorated share of readership multiplied against the size of pool. If it sounds opaque, that's because it is. Amazon determines the size of each month’s pool and the value per qualified read after the month ends.

This wouldn’t be a problem if Amazon was a benevolent player, committed to paying their publishers 70% list. In November Amazon paid only $1.39 per qualified read, regardless of the book’s length or price. $1.39 works out great if your regular retail price is $.99 (a $.99 ebook sold at Amazon otherwise earns about 34 cents). Yet if your regular ebook price is $3.99 and you’re accustomed to earning almost 70% of that or $2.80, then KU means your effective royalty rate was cut by almost half in recent months to 35%.

Kindle Unlimited represents Amazon’s end-run around the Agency pricing model. With Agency, Amazon is obligated to pay publishers 70% of the list price set by publishers and cannot discount books. KDP has an “Agency-lite” equivalent model in which Amazon doesn't discount except in price matching situations. With KU, your book’s price becomes
irrelevant to Amazon. It also gives Amazon the ability to pay you less than 70% list for each
qualified read.

By providing KU preferential in-store merchandising, Amazon discourages customers from purchasing individual ebooks. Since Amazon has a critical mass of over 700,000 books in Kindle Unlimited, Amazon’s most voracious power readers already have nearly one million fewer reasons to purchase indie ebooks at full retail price. This means that for many budget-minded readers who love indie ebooks, your $2.99 and $3.99 ebook is now too expensive when they can read it (or similar books) for free as part of their subscription.

As I mentioned in my last post, Is Kindle Unlimited Devaluing Books, most of Kindle Unlimited’s catalog is supplied by indie authors enrolled in Amazon’s KDP Select. Without indie author support and participation in KDP Select, there’d be no Kindle Unlimited.

Will indies step up to the plate in 2015 and say no to KDP Select? Since most indie authors sell poorly, I fear many indies will hear KU’s siren song and decide that earning $1.39 or less is better than earning nothing, and this will then perpetuate a slippery slope that will jeopardize earnings for all authors at Amazon.

11. New VAT rules in Europe will put a damper on European ebook sales – Indie authors will suffer a drop in earnings from European ebook sales in 2015. The cause? New European Union VAT (Value Added Tax) rules. On January 1, 2015, new VAT rules go into effect in the European Union.

In the past, the VAT imposed on ebooks was based on the VAT rate for the country in which the retailer was based. To reduce the tax hit, retailers located their European headquarters in Luxembourg, where the VAT was only 3%. At Smashwords retailers, the price set by the author was always VAT-inclusive, which meant the author and retailer’s cut was calculated after the 3% VAT was deducted. At 3%, the rate was negligible and went unnoticed by most customers and authors.

Effective with the new EU rules that start January 1st, VAT is charged based on the customer's geographic location. Rates across the European Union will range from 15% to 26%. This means that effective January 1st, myriad tax rates will be applied to your ebooks sold at Smashwords retailers such as Apple iBooks, Barnes & Noble UK, Txtr, and Kobo.

Indie authors must now decide whether to raise their prices to pass the tax burden to readers, or hold the line on prices which means the author absorbs the tax hit. Either way, the author loses. The ebook retailers are harmed as well since the tax comes out of the purchase price before the retailer earns their 30% cut. As one retailer told me, “we’re all hit with the same stick here.” (Update: To help mitigate the pain, on December 31 Smashwords launched a new pricing tool that allows authors decide if they want to bear the burden of the VAT tax to keep customer prices the same, or if they want to pass the increased VAT burden on to customers in the form of higher prices. Find it in your Smashwords Dashboard or click here.)

12. Back to basics: The bestselling authors in 2015 win with best practices - The formula for bestseller success isn’t rocket science. Success is all about best practices. For every well-executed best practice implemented by the author, the author gains an incremental advantage in the marketplace. What are some of these best practices? 1. You must write a super-awesome “wow” book that takes the reader to an emotional, satisfying extreme (this applies to fiction and non-fiction). 2. Your books should be professionally edited and proofed 3. A great cover image makes your book more discoverable and more desirable to your target reader. Great cover images make an honest and visual promise to your target reader about the experience your book offers. 4. Give your book a fair price. 5. Release your book as a preorder. If you’re not doing preorders, you’re missing out on one of the most powerful merchandising tools today (click here to learn how preorders work). 6. Avoid exclusivity and distribute your book widely. 7. Write another book, rinse and repeat.

Although the best practices aren’t secrets any more (check out my Secrets to Ebook Publishing Success for a refresher on best practices – or watch my best practices video tutorial), most authors fall short on the best practices front. Some authors fall into the trap of searching for easy silver bullet shortcuts. There is no single silver bullet. You must do many things right and avoid pitfalls that undermine your opportunity.

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That's everything! I hope you enjoyed my 2015 predictions. Please add your own predictions for 2015 in the comments below. What big trends are you seeing?

For your reading pleasure, below is an archive of some of my previous predictions. How did I do?

Monday, December 22, 2014

In my previous post, I examined how authors can succeed despite the challenging sales environment for ebooks. Today, I examine how Amazon’s Kindle Unlimited could jeopardize the independence of indie authors.

Budget-minded power-readers at Amazon now have 700,000 fewer reasons to purchase indie ebooks thanks to Kindle Unlimited. Oh, and authors earn less too.

Back in July, Amazon launched Kindle Unlimited, an ebook subscription service where for $9.99 a month, customers gain access to a catalog of over 700,000 ebooks. Nearly all of these titles are supplied by indie authors who participate in KDP Select, Amazon’s ebook self-publishing option that requires exclusivity.

I first wrote about Kindle Unlimited here in July. Although I'm a fan of ebook subscription services (see my two-part series analyzing the subscription business model), I concluded Kindle Unlimited was a bad deal for authors because it required exclusivity and gave Amazon free rein to control author compensation.

Five months in, let's take a fresh look at how Kindle Unlimited's unique business model is affecting authors.

For the month of November, Amazon paid $1.39 for each qualifying read.
This is half of what an indie author earns when a $3.99 ebook is
purchased at Amazon, or when the same book is read at KU's ebook subscription competitors, Oyster and Scribd.

Oyster and Scribd don't require exclusivity. Oyster and Scribd pay authors off of the retail list price set by the author (Smashwords authors earn 60% list at Oyster and Scribd like any other retailer). Amazon, by contrast, requires exclusivity (you can't sell your book anywhere else). They pay out of a shared pool. The size of this shared pool is determined by Amazon the month after the book is read. It’s like Amazon sells your book today but says, “I’ll decide what I feel like paying you in a few weeks."

Many indies have announced they're abandoning KDP Select after suffering massive sales drops since July.

Authors are in a difficult spot at Amazon. A few KU authors have publicly reported increased sales and readership, but that appears to be the exception rather than the norm. For most KU participants, it's unclear if the promised benefits outweigh the harm of excluding the millions of readers at other retailers. No other retailer makes authors play Russian Roulette with their books and careers like this.

KU authors have no control over their per-copy earnings because KU pays the same for a 99 cent book as a $9.99 book. Amazon determines the value of each read, and determines how this value is shared among participating authors.

Historically, the big fear of ebook subscription services was that they’d devalue books, much in the same way some musicians (including Taylor Swift in the news recently) are concerned Spotify devalues music. There are two elements to the devaluation concern. The first is that subscription services might make books feel free to consumers and make them less likely to pay fair prices for other books, and the second concern is that authors will earn less for each customer interaction at the subscription service.

Oyster and Scribd proved that authors and publishers can achieve the same or higher earnings with ebook subscriptions as they earn at retail, and without exclusivity. The Oyster and Scribd business models are author-friendly, and were the fastest growing channels in 2014 for Smashwords authors.

I think most indie ebook authors would agree that low customer prices are a generally a great thing. It's one of the reasons indie ebooks sell so well. Indies are pricing their professional-quality books at a fraction of the price of the books from the large publishers.

Amazon’s business model is dependent upon low prices to attract customers. It must extract price concessions from suppliers to feed budget-minded consumers. Publishers are suppliers. Indie authors are suppliers. When Amazon says it has a responsibility to its
customers to negotiate good deals from suppliers, I don't question that. But how far
is too far?

Is an ebook that sells for $3.99 and earns you $2.79 too expensive for Amazon? Last month, Amazon decided your book was worth $1.39.

Have we come to a point where ebook retailers should display a Fair Trade Certification label so consumers know if the retailer is treating their suppliers fairly? We've got Fair Trade coffee, why not Fair Trade ebooks?

The dark side of exclusivity

Amazon's indie author squeeze started innocuously enough with their launch of KDP Select in December 2011. With KDP Select, Amazon created a caste system in their store that gave advantages to exclusive authors (more discoverability, more merchandising tools, higher royalty rates) and harmed non-exclusive authors (less discoverability, fewer merchandising tools, lower royalty rates).

I’ve been speaking out against KDP Select exclusivity since the program first launched in December 2011. In my first post, I cautioned that KDP Select could trap indie authors like tenant farmers tilling Amazon soil. This is happening now.

Amazon’s defenders will counter that KDP Select participation is optional and temporary, and this is true. Authors are free to leave KDP Select after three months. Yet this freedom is illusory. By choosing to plant their seed exclusively at Amazon, an author must rip their seed out of other retailers' soil. They become more dependent on Amazon.

With KU,
Amazon is salting the earth for authors and competing retailers. KU devalues books, starves its
competitors of the books readers want to read, exposes indies to greater risk and uncertainty, and prevents
future ebook retailing options from taking root.

As Amazon’s exclusive catalog grows, and as indie authors account for an ever-greater percentage of the ebook market, ebook consumers will have fewer reasons to purchase ebooks.

Even authors who have successfully diversified their distribution outside of Amazon are affected by KU. Why should budget-minded power-readers who loves indie ebooks purchase ebooks from iBooks or Barnes & Noble when they can access nearly a million books in KU for one low price?

Indies gave KDP Select its critical mass, which means Indies created this monster. Now indies have the power to undo this before it's too late.

~ Coming up in the next two weeks, I'll do my annual predictions post for 2015 and will also do my annual Smashwords year-in-review post. To guarantee you don't miss any future posts, subscribe to receive posts via email at the subscription link at right. It's a private list and you can opt out at any time.